Pension Income Calculator
Calculate your estimated monthly or annual income from your pension savings at retirement.
The 4% rule suggests withdrawing 4% in year 1, then adjusting for inflation. 3-4% is considered sustainable.
How Much Income Will Your Pension Pot Produce?
A £200,000 pension pot using the 4% withdrawal rule generates £8,000 a year in year one, or £667 a month before tax. A £400,000 pot generates £16,000 (£1,333 a month). A £500,000 pot generates £20,000 (£1,667 a month). At State Pension age, those private pensions stack on top of the full new State Pension of £11,973 a year, so a £400,000 pot plus full State Pension produces a combined pre-tax income of around £27,973, leaving roughly £24,800 after tax for someone with no other income.
Annuity rates in 2026 sit at roughly 6.5% to 7.5% for a healthy 65-year-old buying a single-life level annuity. £200,000 spent on an annuity therefore buys about £13,000 to £15,000 a year, guaranteed for life. The annuity number looks better than the 4% drawdown number, but it is not directly comparable; an annuity uses up the capital, while drawdown leaves your pot invested with the chance of growth and a remainder to pass on. The choice between them is often about longevity risk preference rather than maths.
The 4% Rule, the 3.3% Rule, and Why It Matters
The 4% rule (Bengen, 1994) was tested on US data with a 30-year retirement starting at 65 and assumes you withdraw 4% in year one and adjust that pound figure for inflation each year afterwards. It worked in 96% of historical US 30-year periods. UK markets have lower long-term real returns and higher equity volatility in some windows, so most UK financial planners now use 3.3% to 3.5% as a comparable safe withdrawal rate. The difference matters: at 4%, a £400,000 pot supports £16,000 a year; at 3.3%, the same pot supports only £13,200 a year. £2,800 a year less is a meaningful constraint over a 25-year retirement.
Variable withdrawal strategies (Guyton-Klinger guardrails, ratcheting, the Yale-Endowment 80/20 rule) increase the safe starting rate to roughly 5% in exchange for accepting that you cut your spending in years following a major market drawdown. Nobody enjoys cutting spending in retirement, so most retirees end up with a hybrid: 3.5% to 4% as a base, with discretionary spending (holidays, gifts) layered on top in good market years and trimmed in bad ones. The [can I retire early calculator](/can-i-retire-early) lets you stress-test what happens to projected retirement income at different growth and withdrawal assumptions.
What Pension Income Looks Like After Tax
Pension income (apart from the 25% tax-free lump sum) is taxed as normal earned income. The personal allowance of £12,570 applies first, then 20% basic rate to £50,270, 40% higher rate to £125,140. So a £25,000 pension income for someone with no other income produces £22,514 net after tax (no NI, because pensioners do not pay NI). For someone still working part-time on £15,000, the pension income stacks on top and most of it falls into the basic rate band. The State Pension always uses up the personal allowance first, which catches retirees by surprise; with State Pension at £11,973 in 2026/27, every pound of private pension is taxable from the £597 mark upwards.
Frequently Asked Questions
How much pension income can I get from £100,000?
Using the 4% rule, £4,000 a year in year one (£333 a month). Using a more cautious 3.3%, £3,300 a year (£275 a month). Buying an annuity with the full pot at age 65 produces roughly £6,500 to £7,500 a year guaranteed for life, but uses up the capital. A £100,000 pot is best treated as a supplement to the State Pension and any other savings, not as a standalone retirement income.
Should I take an annuity or use drawdown?
Drawdown gives flexibility and the chance of growth (and a residual pot to pass on), but you bear the longevity and market risk. Annuity gives certainty but uses up the capital and offers limited inflation protection unless you pay extra. A common compromise is to annuitise enough to cover essential bills (council tax, utilities, food) and use drawdown for discretionary spending; this caps your downside while keeping flexibility. Annuity rates in 2026 are at their highest in fifteen years, which has shifted some retirees back towards full or partial annuitisation.
Can I take all my pension at once?
Yes, since 2015 pension freedoms. 25% of the pot is tax-free up to a Lump Sum Allowance (LSA) of £268,275; the remaining 75% is taxed as income in the year you take it. Taking a £200,000 pot all at once would push someone with no other income from a £12,570 personal allowance into the additional rate band, costing roughly £55,000 in tax versus spreading withdrawals over multiple years. For most retirees, a phased drawdown over 5 to 10+ years is dramatically more tax-efficient than a single large withdrawal.
What happens to my pension if I die?
If you die before 75, your remaining pension pot can usually be passed to your nominated beneficiary tax-free. After 75, the beneficiary pays income tax at their marginal rate on any withdrawals from the inherited pot. This is one of the largest IHT planning advantages of pensions; pension assets sit outside the deceased's estate for inheritance tax purposes (with some exceptions being introduced from April 2027 onwards under recent Budget changes).
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